Top Janus exec on leave

Institutional sales chief linked to market-timing probe

SAN FRANCISCO (CBS.MW) -- A Janus Capital Group senior executive now on leave is one of several top officials -- including the firm's CEO -- who were apparently told about improper trading in the company's mutual funds more than a year ago.

Lars Soderberg, head of the firm's sales to institutional investors, took a leave of absence and his role with the company is being evaluated "in light of the ongoing investigations of the mutual fund industry and related regulatory matters," Janus
JNS
said Monday in a brief press release. Soderberg also serves on the Denver-based fund company's powerful management committee.

Janus is negotiating a settlement with federal and state regulators of allegations that it allowed short-term "market timing" trades in its funds. Those trades were supposed to be prohibited.

CBS MarketWatch reported last month that an internal Janus memo shows Mark Whiston, now CEO, knew of the market timing almost a year before New York Attorney General Eliot Spitzer implicated the firm in his fund industry investigation.

The Nov. 12, 2002 electronic message addressed to Whiston and others, including Soderberg, details an internal study Whiston commissioned of market-timing trades in the company's funds. See full story.

At the time of the memo, Whiston was president of retail and institutional services but had been named CEO, a role he assumed in January 2003. The report is damaging because it shows that Whiston knew of company-sanctioned trading arrangements that went unmonitored.

There is no suggestion in the memo that Whiston or Soderberg encouraged market timing, but a person close to the investigation said Janus executives could face penalties for failing to take stronger action against the practice. The company has since imposed redemption fees aimed at discouraging short-term trading.

In market timing, investors trade funds quickly to capitalize on short-term fluctuations in fund prices. While the practice is legal, most funds restrict or prohibit the trading because it skims profits from long-term investors. Spitzer has accused some fund companies of fraud, saying they told retail investors that timing was banned while secretly allowing it for selected large customers.

Soderberg's leave of absence "has been under discussion for several weeks," said Janus spokeswoman Shelly Peterson. "Bringing resolution to the entire mutual-fund trading issue is a priority for us," she added.

Spokespersons for Spitzer and the Securities and Exchange Commission declined comment. Janus was one of four companies named in Spitzer's settlement last September with hedge fund Canary Capital Partners over fund-trading violations.

As head of institutional sales at Janus, Soderberg was in a position to be familiar with Canary and other institutional accounts, said Geoff Bobroff, a fund industry consultant.

"He clearly was responsible for the institutional business," Bobroff added. "Canary, as one of those institutional accounts, probably came through his own staff."

In its statement Monday, Janus gave no indication about how it would determine Soderberg's future with the company.

Janus has been slower to make personnel changes than many firms implicated in the trading scandal. Richard Garland, former head of Janus's international operations, resigned in November after e-mails suggesting he knew of market timing surfaced in the Canary settlement.

The day after Garland's resignation, Whiston said in a letter on the company Web site that all employees "central to the decisions to accept the discretionary trading arrangements" were no longer with the company. He added that further disciplinary actions could come if Janus learned of violations by other employees.

Some analysts say Garland won't be the only Janus executive forced out as a result of the market-timing controversy.

"When you look at the settlements that have been reached to date (with other fund companies), very senior people have been asked to leave," Bobroff said. "To suggest that Garland was the only person who was going to have to leave was unrealistic. The SEC takes a view that probably everybody on that [e-mail] list might have had an obligation" to disclose the activity.

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